Convenience stores gear up for a brighter future

December 29th, 2011 by Philip Brasor & Masako Tsubuku

Ready when you are: 7-11 Premium prepared foods

The retail giant 7&i Holdings reported an 8 percent increase in sales for the first half of fiscal 2011 over the previous year. It was a new record and clearly driven by the company’s 7-11 convenience stores. They aren’t the only ones. The three other main CS chains — Family Mart, Lawson and Sunkus/Circle K — have also reported strong earnings, the result of what the Asahi Shimbun calls a “better opinion” of convenience stores in the wake of the March disaster.

Because there are so many convenience stores, they tend to be in closer proximity to people’s homes than larger retail operations, so during that anxious period when people did not want to stray too far from their homes and loved ones, CS became a sort of lifeline. As a result, demographics that previously didn’t patronize convenience stores, such as housewives and the elderly, came to rely on them more and more, and in the process also came to appreciate their distinctive merchandising schemes.

This success has given the industry a sense of purpose, and all four big CS chains have announced plans to open as many stores as possible over the next year or so. According to the Japan Franchise Association, as of March 2011 there were 45,769 convenience stores in Japan. The industry itself, according to the Asahi, believes that the “saturation point” for convenience stores in Japan is 50,000, though some analysts say that due to the rise in single-person households, which is exactly the sort of scenario that benefits CS, the market may be able to absorb even more.

7&i plans to open 1,350 stores in FY2012, while Family Mart, which over the past two years took over 800 former am/pm stores, plans to open another 800 brand new outlets. Lawson’s target for the same period is between 800 and 1,000, and the Sankus/Circle K juggernaut is aiming for 360.

As the president of Family Mart told Asahi, when the magic number of 50,000 is reached, “natural selection” will eliminate the stragglers, thus implying that his company, at least, is looking to buy more smaller CS chains. Most likely, competitive edge will not be determined by pricing but rather through the quality of private brands (PB). 7-11’s 7Premium line is the acknowledged leader in the CS PB marketing movement, characterized by products that previously were identified with depachika, high-end prepared food retailers located in the basements of presitigious department stores. 7Premium even started its own wine label. Lawson followed suit several years ago with its Select line, and in October fortified it with the more expensive Delicious series, thus prodding 7-11 to augment its own PB line with products labeled 7Gold, which includes frozen meals that appeal to working women.

The main thrust of CS private brands has gone beyond convenience and quality. What customers demand is storage capability, food that can be kept for a long time. This is a major shift in strategy for CS, which have traditionally been associated with merchandise to satisfy immediate needs or wants. The typical CS customer has always been a single man living alone, who tends to buy things on a day-to-day basis, but since the March disaster a larger range of consumers have started patronizing convenience stores, which means they have to offer a larger range of products. They’ll increasingly move into the retail niche previously controlled by supermarkets. Lawson is already selling premium packaged cut vegetables and plans in the near future to sell fresh produce that will be grown exclusively for their stores.

Lawson’s PB strategy seems to be working. Though comparative sales of each CS chain correspond to the number of stores each has, Lawson, no. 3 in terms of sales, came in second in a Franchise Association survey of consumers who were asked which convenience store they liked best. The reason given was “quality of merchandise.” No 1, 7-11, was chosen for its “wide selection,” while no. 3, Family Mart (no. 2 in sales), received positive feedback for its “atmosphere.” It should be noted, however, that the main criterion people cited for choosing a convenience store was proximity to wherever they happened to be at the moment, so “convenience” is still the main selling point.

Yen for Living is produced by Philip Brasor, a freelance writer-for-hire, and Masako Tsubuku, a freelance translator and interpreter. They are currently working together on a book about Japanese housing that will probably never be finished. In the meantime they have their own blog on the subject: Cat Foreheads & Rabbit Hutches. You can read more by Philip at philipbrasor.com.

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2 Responses

“45,769 convenience stores in Japan… the “saturation point” for convenience stores in Japan is 50,000.” Expend in a shrinking population when you are already at 90% of saturation? Japanese business decisions, sigh…

One thing about franchise businesses is that the company risks nothing, since all the franchise operators have to buy their stock from the parent company, and usually there are a lot of rules that guarantee the parent company will never lose money even if the franchise operator does. So increasing the number of stores even as the population shrinks is not as strange as it sounds.